Deflation appears to be in the equation

Turn on CNBC or Bloomberg News, and you will definitely hear the hosts and interviewees rave endlessly about the booming markets, low joblessness, and the record economic expansion. However, that’s not the entire story. The economy isn’t all roses when one considers the considerable measure of money related to monetary steroids stimulating growth, which eventually will lead to ramifications. When the market rate (of interest) is underneath the natural rate, there is a motivating force to borrow and reinvest in an economy at a higher average rate. On the off chance that a difference between the natural and the market rate continues, it causes a severe misallocation of capital. Financial assets soar in value while few long term income-driven new assets are added to the capital stock, driving down productivity and economic growth. As the diagram illustrates, the Fed Funds rate has been stuck at 2% beneath the rate of economic growth since the financial crisis. Such a low relative rate traversing such a significant stretch is unprecedented and has had consequences.